Regulator’s first action

Chuo Mitsui faces US$600 fine in Japan insider trading probe

TOKYO: Japan’s securities regulator took its first action yesterday in a probe into suspected insider trading, proposing a US$600 fine against Chuo Mitsui Asset Trust and Banking for illegal trading in shares of energy firm Inpex ahead of its stock offering in 2010.

The Securities Exchange and Surveillance Commission (SESC) said it had recommended a fine of 50,000 yen against the asset manager for using non-public information on the Inpex offering to make a profit for its fund. It is up to the Financial Services Agency to act on the SESC’S recommendation.

The Us $6.2bil Inpex deal is one of handful of recent share offerings under investigation in Japan due to heavy short-selling and volumes before and after their announcements. This has lead to accusations that the information was leaked.

“The casual dissemination of deal information has been a problem for a long time in Japan. Other markets have aggressively tackled the issue but Japan has only recently begun to do this,” said a Tokyo-based capital markets banker.

“The reputational damage is obviously much worse than the fine, given its size, and the regulators may feel that’s sufficient to act as a disincentive to others.”

Japanese authorities have been under pressure to take steps against insider trading following a series of suspicious trading around public share offerings in recent years.

In addition to Inpex, regulators have been looking into sharp falls in the share prices of Nippon Sheet Glass and Tokyo Electric Power ahead of the announcements of their share offerings in 2010.

“We welcome the SESC’S recommendation to fine an insider trader ... but have concerns that such a low fine will send the wrong signal to the market,” said Asian Corporate Governance Association CEO Jamie Allen.

The SESC said a fund manager at Chuo Mitsui Asset received a tip-off of the upcoming Inpex offering from a securities firm, and then sold off its existing holdings and took out short positions in anticipation the stock price would fall.

The trades generated a profit of more than 10 million yen (US$120,000), an SESC official told a briefing.

The SESC did not name the securities company.

Chuo Mitsui Asset, said the group formed a special team last week to conduct a thorough investigation into the insider trading.

“We’ll take this regulatory violation seriously. We apologise for causing a great deal of trouble and anxiety,” Ken Sumida, the president of Chuo Mitsui Asset Trust and Banking, told a news conference. – Reuters